TEXT-Fitch Rates Commonwealth Bank of Australia Covered Bonds 'AAA'

Sun Feb 3, 2013 8:23pm EST

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(The following was released by the rating agency)

SYDNEY, February 03 (Fitch) Fitch Ratings has assigned Commonwealth Bank of Australia's (CBA, 'AA-'/Stable/'F1+') Series 25 EUR112m February 2029 mortgage covered bonds 'AAA' ratings with a Stable Outlook.

This issue brings CBA's outstanding covered bonds to AUD15.2bn. All bonds are guaranteed by Perpetual Corporate Trust as trustee of the CBA Covered Bond Trust.

The rating is based on CBA's Long-Term Issuer Default Rating (IDR) of 'AA-', a Discontinuity Cap (D-Cap) of 2 (high) and an asset percentage (AP) of 85%, which is below Fitch's breakeven AP of 85.5%.

Sensitivity / Rating Drivers

The 'AAA' rating would be vulnerable to a downgrade if the issuer's Long-Term IDR is downgraded by two or more notches; if the D-Cap falls by more than one category; or if the AP level Fitch takes into account in its analysis rises above the breakeven point of 85.5%.

The driver of the D-Cap is Fitch's assessment of high liquidity gap and systemic risk. This is principally driven by programme documentation which provides, in certain circumstances, for a six-month period, prior to a scheduled covered bond maturity, for cover pool asset sales, while Fitch has assessed the time required to sell cover pool assets in Australia as 12 months. The D-Cap of 2, when combined with CBA's IDR and recovery uplift, supports a 'AAA' rating on the covered bonds.

As of 30 November 2012, the cover pool consisted of 78,691 loans secured by first-ranking mortgages of Australian residential properties with a total outstanding balance of AUD18.5bn. The portfolio is wholly made up of full documentation loans, which have a weighted average current loan-to-value ratio of 59.7%, and a weighted average seasoning of 40.5 months. Floating-rate loans comprise 89.4% of the cover pool. In a 'AAA' scenario, Fitch has calculated a weighted average frequency of foreclosure for the cover assets of 7%, and a weighted average recovery rate of 39%. The cover pool is geographically distributed across Australia's states, with the largest concentrations being in New South Wales (38%) and Victoria (36%). The agency's mortgage default analysis is based on its Australian residential mortgage criteria.

The Fitch breakeven AP in line with the covered bond rating will be affected, among others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore it cannot be assumed to remain stable over time.

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